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On the choice of the exchange-rate regimes


  • Chien Nan Wang


This paper utilizes recent research developments in portfolio balance theory and in real exchange-rate instability to synthesize, update, and test the optimum currency area (OCA) theory. Four hypotheses, capturing the central features of the OCA theory, are advanced and tested in a multinomial-logit setup. the empirical results establish the linkage between a fixed rate and financial integration, trade integration, plus inflation convergence. the Mundell-Fleming ranking of regime is refuted in a fundamental way. these findings are applied to a discussion of European monetary integration, in relation to both its final objective and its intermediate procedure.

Suggested Citation

  • Chien Nan Wang, 1990. "On the choice of the exchange-rate regimes," Working Paper 9002, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:9002

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    References listed on IDEAS

    1. Martin J. Bailey & George S. Tavlas, 1988. "Trade and Investment under Floating Rates: The U.S. Experience," Cato Journal, Cato Journal, Cato Institute, vol. 8(2), pages 421-449, Fall.
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    10. Holden, Paul & Holden, Merle & Suss, Esther C, 1979. "The Determinants of Exchange Rate Flexibility: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 327-333, August.
    11. Darby, Michael R. & Lothian, James R. & Gandolfi, Arthur E. & Schwartz, Anna J., 1983. "The International Transmission of Inflation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226136417.
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    13. Melvin, Michael, 1985. "The Choice of an Exchange Rate System and Macroeconomic Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 467-478, November.
    14. Jacob A. Frenkel & Morris Goldstein, 1988. "The International Monetary System: Developments and Prospects," NBER Working Papers 2648, National Bureau of Economic Research, Inc.
    15. Maurice Obstfeld, 1985. "Floating Exchange Rates: Experience and Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 369-464.
    16. Jacob A. Frenkel & Morris Goldstein, 1988. "The International Monetary System: Developments and Prospects," Cato Journal, Cato Journal, Cato Institute, vol. 8(2), pages 285-314, Fall.
    17. Frenkel, Jacob A. & Aizenman, Joshua, 1982. "Aspects of the optimal management of exchange rates," Journal of International Economics, Elsevier, vol. 13(3-4), pages 231-256, November.
    18. Irving B. Kravis & Robert E. Lipsey, 1982. "Towards an Explanation of National Price Levels," NBER Working Papers 1034, National Bureau of Economic Research, Inc.
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